Florida Company (FC) and Minnesota Company (MC) are both service companies. Their historical return for the past three years are: FC: - 5%, 15%, 20%; MC: 8%, 8%, 20%. Calculate the covariance between the returns of FC and MC.

Question

Quizplus · Accepted Answer

The covariance between the returns of FC and MC is 60. This is calculated by multiplying the covariance of the returns of FC and MC by the standard deviation of the returns of FC and the standard deviation of the returns of MC. The covariance of the returns of FC and MC is 20, and the standard deviation of the returns of FC is 12.5 and the standard deviation of the returns of MC is 8.94. Therefore, the covariance between the returns of FC and MC is 60.

Florida Company (FC) and Minnesota Company (MC) Are Both Service